Why Narendra Modi May Answer Farmers' Distress With a Basic Income Plan
The Wire 12 Jan 2019
In the last two weeks, there has been much speculation about Prime Minister Narendra Modi seriously considering the implementation of a universal basic income (UBI). This follows his party’s recent electoral debacle in the Hindi heartland, and precedes by just a few months the 2019 General Election.
This is the second wave of interest the current government has shown in the idea of UBI. The first wave was in the early 2017, when the then chief economic advisor, Dr Arvind Subramanian, included a substantial chapter entitled Universal basic Income: A Conversation with and within the Mahatma, in his annual Economic Survey (2016-17) which was presented to parliament. The chapter explored the concept of UBI and observed that it could be a way forward to address poverty.
Subramanian went on to say that a full-fledged UBI may not be feasible in India immediately, but it was possible to think of a quasi UBI (QUBI), which identifies specific demographics and gives them an unconditional basic income.
One of his speculations was that a QUBI could be extended to all women citizens, to ensure that every household receives a basic income. The discussion within the government did not proceed beyond this point, as the Prime Minister was not convinced of the political dividends flowing from this policy route.
How Telangana and MP responded to farmers’ distress
The immediate trigger for the second wave of interest in basic income is the recently concluded election in states of Telangana, Rajasthan, Madhya Pradesh and Chhattisgarh. At the time of these elections, farmers’ crisis took centre-stage and the Congress party promised they would waive farm loans as soon as they came to power – and they did so when they took charge of three states.
In the state of Telangana, the ruling party, Telangana Rashtra Samithi (TRS) went a step further by implementing, several months before the elections, a scheme called Rythu Bandhu (Farmer Investment Support), which gives farmers Rs 8,000 per acre per annum. The cutting edge of the scheme is that it is unconditional – a feature that is considered central to the idea of basic income.Irrespective of whether farmers take up cultivation or not, the investment will be transferred to them. The scheme benefited about 5.8 million farmers who own a total of 14 million acres of cultivable land in Telangana.
In 2017, responding to farmers’ agitation in the state, the Madhya Pradesh government implemented a different kind of scheme. The Bhavantar Bhugtan Yojana (BBY) originally intended to pay farmers the net difference between the actual sale price and the minimum support price announced by the government.
Subsequently however, the government introduced the modal rate, which is the average of the sale price of a given crop sold on any given day,in Madhya Pradesh and also in the markets of two other neighbouring states.
Both schemes ran into controversy, the latter more so. The Rythu Bandhu scheme was critiqued in that it did not give any benefit to the tenant farmers who are actually cultivating the land. Secondly, it was seen as regressive since it was also paying the rich farmers as well. The government then appointed J-PAL, a reputed international group, to monitor and evaluate the scheme.
In its initial survey after the first round of transfers were made in June 2018, it was revealed that most cheques were for less than Rs 20,000, and only 0.8% of the farmers received more than Rs 50,000. A follow-up survey by J-PAL revealed that farmers spent the money judiciously with over 77% purchasing crop inputs, and 92% percent saying that they were satisfied with the scheme.
The Madhya Pradesh scheme was criticised because it brought in the notion of modal rate, which was way above the actual sale price. Ordinary farmers, who were unaware of the critical distinction between the actual sale price and the modal price, were in for a shock. Assuming the government would compensate them for the difference between MSP and sale price, many of them also made distressed sales of their produce and then realised that they would get much less compensation. Disappointed with this conditionality, many farmers were unwilling to sign up for the subsequent crop. Not just this conditionality, but there were several other conditionalities in that scheme.
The sale has to take place during the prescribed window of three months. There was a cap on the volume a farmer could get compensated for per hectare. There was also a proposal, that if a farmer sells his produce for less than 50% of the MSP, he becomes ineligible since it is the poor quality of his produce that results in the lower sale price, and that the government should not compensate the farmer for producing low quality produce. And lastly, the scheme was applicable to only seven crops and not all.
It appears that these two schemes and the farm loan waivers are the three primary options the central government is discussing in order to find an effective response to the distress that farmers all over the country are experiencing. Let us consider each one of them.
Three potential responses to farmers’ distress
First, the loan waivers. All the three new Congress governments have announced loan waivers within days after assuming power. Even as these announcements have been taking place, experts from different locations have criticised loan waivers as harmful to the economy. Close on the heels of these announcements, the former RBI Governor Dr Raghuram Rajan released a document entitled An Economic Strategy for India, which he co-authored with 12 other well-known economists, including the IMF chief economist Gita Gopinath and Sajjid Chinoy of JP Morgan, among others.
The report advises the government to “…eschew loan waivers that divert resources from needed investment.” Arvind Subramanian in a recent interview vociferously criticised farm loan waivers as “an inefficient, retrograde and even perverse method of addressing farmers’ distress.” He further added an important point – that is often overlooked that nearly 50% of the small and marginal farmers cannot and do not borrow from formal banks – which completely excludes them from this mode of addressing farmers’ issues.
Dr Urjit Patel, who recently resigned as the RBI governor, criticised farm loan waivers as corrupting the credit culture in the country. Addressing his party workers in Karnataka, Modi himself called Karnataka government’s farm loan waivers a “cruel joke on farmers,” adding that it benefits only a handful of them.
It is clear that farm loan waiver is not likely to be part of Prime Minister Narendra Modi’s new grand electoral narrative. This now brings us to the other two options.
Between the two, the Rythu Bandhu seems to be a clear winner, not just because of the electoral gains that the TRS party reaped from its introduction, but because of certain essential features that are unique and demonstrate a clear transformation in the very grammar of welfare policy-making in India.
Firstly, it is an entitlement without multiple conditionalities – only one, that the recipient must have a clear title. The curse of various welfare schemes in India is that each one comes with innumerable conditionalities, which gives extraordinary discretion to inspectors who administer it.
Rythu Bandhu makes a departure from this welfare practice, which is based on the assumption that any government support must reach only the deserving and be spent only for on the government decides.
Secondly, Rythu Bandhu is a proactive policy and not an eleventh-hour reprieve for some calamity. In fact, some economists such as Ashok Gulati, Arvind Subramanian, Bimal Jalan, etc., have said that it could be a potential agricultural policy for the entire country. The main point is that it is defined as an investment rather than welfare.
Thirdly, because it is unconditional and a cash transfer, it is very easy to deliver. The record of delivery of Rythu Bandhu has been impressive. Except in those cases where the land ownership is in dispute, a majority of the farmers in the state have received cash in their bank accounts.
In addition to these innovative features, the TRS government has also added a scheme for all farmers called Rythu Bima, a life insurance scheme which provides a cover of Rs 5,00,000. The annual premium of Rs 2,272 per farmer is to be paid entirely by the state government.
This is the context in which Modi is wading into the grand electoral contest of 2019.
What is Modi likely to do?
Given that farmers have become quite vocal and that there is hardly any time before the model Code of Conduct kicks-in around March 2019, he has to respond in some form in the interim budget. In all likelihood, he may implement some version of Rythu Bandhu in combination with some kind of an insurance scheme for farmers. While this by no means can be called a universal basic income, it does carry the spirit of UBI, that is, unconditionality.
Normally we would be inclined to dismiss this as an electoral gimmick. We should not forget that in an electoral democracy, change comes in clumsy ways. If Indian political parties are embracing the idea of basic income, the shift in our policy grammar has to be welcomed – as a step in a longer journey to build a better society.
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